Cedar Creek Partners LLC, a private investment partnership, started operations in January 2006 and is managed by Eriksen Capital Management (ECM). ECM was established by Tim Eriksen in 2005 and follows the bottom-up value investing style. Cedar Creek managed to return 22% on annualized basis, net of fees, since its inception in January 2006 through March 2011, thus outperforming general market indices by wide margins. S&P returned about 2.7% annualized during the same period. An investor group led by Zeke Ashton of Centaur Capital acquired 23% of the management company in 2010.
Tim is a registered investment advisor representative in Washington and California, and offers portfolio management services to private funds and individuals. After obtaining his MBA from Texas A&M University in 1997, Tim didn’t get the offer for a money manager’s role, his dream job. So he worked as an administrative engineer for one of the largest general contractors of the country, Peter Kiewit & Sons, from 1999 to 2004. Since 2001, he also started building model portfolios in Marketocracy, a research company dedicated to finding the best investors in the world. It tracks the performance of virtual portfolios and the best performers make up the company’s m100 and m10 indexes. Both the m10 and m100 indexes are aggregated after reviewing the performance of nearly 60,000 virtual portfolios, managed by people from 130 different countries. Tim’s portfolio has featured in the m100 index repeatedly while his selections have been in the m10 index since April 2005. From 2004 to 2006, he worked as an independent contractor for Walker’s Manual Inc, covering unlisted, micro-cap and community bank stocks.
Tim’s excellent portfolio performance was first highlighted in 2006 when Forbes’ Matt Schifrin reported his success investing in undervalued asset managers like U.S. Global Investors and Eaton Vance. Tim’s investment style is similar to other value stock investors, including those profiled on Greatest Investors You’ve Never Heard Of and What You Can Learn From Them and The Warren Buffetts Next Door.
Eriksen Capital manages Cedar Creek Partners LLC, a private investment partnership aiming capital appreciation through concentrated investments in companies that are currently trading at below their intrinsic value. The key parameters for investin in companies are: free cash flow generating abaility, earnings capacity and value of assets. The fund is long biased and is typically 70%-90% net long. The size of overall investment in a security depends on the attractiveness of the opportunity that includes an individual risk assessment and the correlation it may have with other securities in the portfolio.
The company typically buys stocks that have the potential to grow within a specified time horizon and trims its position as the price target is achieved. If better opportunities arise in the interim, a position may be sold before price target is hit. It is focused on micro and small cap companies that are selling at a discount to their intrinsic value and doesn’t show up on the radars of Wall Street’s big boys. In addition to its long-term core holdings, it invests in companies trading at a discount (to their intrinsic values) and have short to medium-term catalysts that can eliminate the discount. It believes higher portfolio churning for smaller profits is better than holding for too-long for bigger profits. Also, he believes too much diversification leads to mediocre results.
Apart From Warren Buffett and Graham Dodd’s intrinsic value investing style, Eriksen Capital follows Peter Lynch’s buy-what-you-know GARP (Growth At Reasonable Price) model. A quick look at Tim’s choice of companies reveals he’s focused on Asset Management and Natural Resources Royalty companies. According to him, typical large firms in the asset management space trade at higher multiples than the market average, and have an operating margin of about 35%. Though firms trade at a significant premium to book-value, it’s not important due to their capacity to generate considerable free cash. Tim however, picks the undervalued (trading at discount) stocks which he believes have solid growth prospect. For him, the best catalyst that can eliminate the discount is earnings growth.
Tim prefers royalty companies over producers since they are less capital intensive and generates free cash (businesses that require less capital require less debt, hence interest outgo is lesser, resulting in higher free cash flow, both FCFF and FCFE). Similar to asset management companies, he picks companies trading at a discount in the royalty space with good growth prospects, and believes earnings growth is the best catalyst that can eliminate the discount.
Quotes: “The goal of every enterprising investor is to achieve attractive absolute returns and to outperform a passive index approach over time. The best way to achieve that is to focus on the least efficient segments of the stock universe. In other words, we should fish where others are not.
“That is the basis of how we manage money. We spend our time looking at the most ignored segments of the market — companies with market capitalizations of less than $200 million, spinoffs, misunderstood mid and large caps, stocks trading under $5 per share, and unlisted companies. Ideally, we want companies that also have a near-term catalyst that will result in a narrowing of the gap between the market price and our estimate of intrinsic value.”
Source: http://valueinvestingletter.com/investing-like-a-young-warren-buffett.html
“In 1999, Warren Buffett told Business Week, “If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.
“In the 1950s Buffett invested in tiny stocks at dirt cheap prices. It seems clear from his comments that if he had a modest sum to manage, Buffett would not be buying Coca Cola or Wells Fargo, and if I want to give myself the best chance of producing very high returns and to significantly beat the market averages, I shouldn’t either. Rather, I need to spend my time, as Buffett said in 2005 to a group of students, “turning over a lot of rocks” to find those investments that are “way off the map.”
